Site Mobile Navigation

Johnson & Johnson Buys Pfizer Unit for $16.6 Billion

When Pfizer announced in February that it wanted to unload its consumer health care unit — well-known products like Listerine for bad breath, Rolaids and Zantac for heartburn, Lubriderm for dry skin and Rogaine for hair loss — the group became the object of William C. Weldon's desires.

"When this asset became available, immediately we were interested," said Mr. Weldon, the chief executive of Johnson & Johnson. "Very, very rarely do you see the type of brands and the iconic brands that became available in all of this."

Johnson & Johnson announced yesterday that it was buying the Pfizer division, paying $16.6 billion to beat out several other bidders.

Analysts said the move would make Johnson & Johnson the world's largest consumer health care company. Several analysts, however, said the price — more than four times the group's 2005 sales of $3.9 billion — seemed high compared with previous deals in the field.

Johnson & Johnson shares fell to close at $60.21 yesterday, off $1.11.

In a note to investors last night, a Morgan Stanley analyst, Glenn Reicin, maintained a rating of equal weight on Johnson & Johnson, but said, "J.& J. is paying a rich premium at 4.2 times sales for the Pfizer consumer business, in our view."

In addition to the other household names, the deal will give Johnson & Johnson rights to the over-the-counter version of Zyrtec, the top-selling prescription antihistamine, and the foreign rights to the Nicorette smoking cessation line.

The company said it had evaluated the value of the products based on their merits, not compared to other, similar deals.

"This is a very different set of assets," said Robert J. Darretta Jr., Johnson & Johnson's chief financial officer.

Pfizer, which has decided to focus its attention on its pharmaceutical business, said it would clear $13.5 billion after taxes on the sale and announced it would buy back up to $17 billion in shares over the next two years.

Several analysts said the deal seemed to represent a strategic shift for Johnson & Johnson by increasing its smallest division — consumer health — to a size closer to the company's more dominant pharmaceutical and medical device divisions.

In the first quarter, pharmaceuticals accounted for 43 percent of the company's $13 billion in sales, while medical devices and diagnostics accounted for 39 percent of sales. Consumer health care accounted for only 18 percent.

By changing that ratio, the company increases the overall weighting of a fairly predictable part of its business at a time when results in the pharmaceutical and medical device businesses are volatile.

During a telephone conference with investment analysts yesterday, Mr. Weldon acknowledged that the consumer business was the least risky of its businesses. "Does that come into the equation? Yes. But it doesn't really drive it," he said, asserting that the company's strategy has always been broadly based.

Mr. Weldon also noted that the use of over-the-counter medications was growing rapidly and that increasing disposable income in developing nations was creating additional demand for consumer products.

Among positive aspects of the acquisition is that it will enhance the overall relevance of the company's consumer brands, help secure shelf space in retail establishments, and open up new markets. About 50 percent of the Pfizer portfolio's sales are outside the United States.

Jan David Wald, who covers the company for A. G. Edwards, expressed mixed feelings about the purchase.

"I think buying good brands when you can is a good thing to do. And less reliance on medical devices and pharmaceuticals is probably good for the company in the short term," Mr. Wald said.

But he added, "It doesn't help a whole lot on the bottom line, and on the top line, when we look at the Pfizer business, a growth rate of 5, 6, 7 percent, it's not going to help them a whole lot.

"The one thing it didn't do was move the needle on growth, which is what I think investors were mainly interested in seeing."